'Chance for a new start': Croatia writes off debts of 60,000 poorest citizens

Croatian government have gotten creditors on board a plan to erase the debts of some 60,000 poorest citizens. The “fresh start” scheme targets less than 1 percent of the entire debt, but is hoped to boost the economy in the long-term.

The unorthodox measure
was voted for by the government on January 15 and comes into
force on Monday. To be eligible to participate debtors must have
no savings or property, have a debt no greater than about $5,100
and live on welfare or an income of no higher than $138 per
month.

"We assess that this measure will be applicable to some
60,000 citizens," Deputy Prime Minister Milanka Opacic said
as he was introducing the bailout. "Thus they will be given a
chance for a new start without a burden of debt."

Some $31 million worth of bad debts are expected to be written
off by creditors who have signed up to the government’s scheme.
Those include several banks, telecommunication companies, major
utilities, several major cities and municipalities as well as the
government’s own tax agency. None will be refunded for their
losses.

The program would return access to bank accounts to about 20
percent of the 317,000 Croatians, whose accounts were frozen in
July last year due to debts. The entire population of the small
Mediterranean nation is 4.4 million.

"This is the first time that any (Croatian) government is
trying to solve this difficult problem and we are proud of
it," Prime Minister Zoran Milanovic told a cabinet session.

Gov't includes tax debts in its debt write-off scheme: The
Croatian government on Thursday… http://t.co/G1eqweR36D

In addition to debt erasing Milanovic’s government is considering
other measures to help its debt-stricken citizens amid the
economic recession, which has been plaguing the country for six
years in a row. Zagreb wants to follow the example of Bulgaria
and fix a favorable exchange rate for mortgage loans taken in
Swiss francs.

The Swiss currency was popular among lenders due to its
long-running stability, and mortgage loans denominated in francs
were popular in many Eastern European nations. But the economic
turmoil in the Eurozone put pressure on the Swiss franc, which
was pegged against the euro since 2011, when market volatility
made investors rush to the Swiss safe-haven currency.

The
pegging ended in mid-January, sending the franc’s value up 20
percent against other currencies. This led to franc-denominated
debts costing much more for foreign borrowers.

Hungary was lucky to dodge the damage due to a program launched
by the government of Prime Minister Viktor Orban in 2011, which
forced a conversion of franc-denominated mortgages into the
Hungarian national currency at a fixed rate. Banks operating in
the country took the hit, but now the Hungarian government is
celebrating saving its citizens from a hard fall.

Poland and Romania are considering a similar move, while Croatia
has amendments to its Credit Institutions Act already floating in
the legislature.